Just like my friend, insurers need to explore what is new, and look at the vast possibilities available today thanks to advances in technology. Recent SMA research findings indicate the primary business drivers for insurers are focused on growth, efficiency, and agility. All three of these drivers are dependent on key capabilities managed by policy administration systems. Now is the time to take a fresh look at what is really possible with today’s modern policy administration systems.

The Missing Link

Companies beginning the process of looking for a replacement policy administration system first need to answer the following question: Are you looking at just replacing your old system due to the limitations of your current systems environment, or are you looking at the possibilities of what a whole new environment will bring to your business? SMA observes that frequently companies approach technology updates with their eye focused more on the limitations they want to free themselves from, rather than the possibilities that could transform their businesses. It is critical to understand what the needs of the business really are.

All too often companies rush into the vendor selection process without first doing some critical evaluation of the real functional capabilities that are required to meet the company objectives. It is important to approach the selection of a policy administration system by starting with a clear understanding of how the required business and technical capabilities of the system relate to the basic elements of the business strategy. The critical link between the strategy and the technology, the definition of functional business capabilities, needs to be shaped and guided by the business strategy.

For example, a business strategy and accompanying objective of increasing growth through agent/broker channels by five percent will require business capabilities that make it easy for the agent to place and service business. A strategy that is geared to reducing loss costs by five percent likely requires business capabilities that enable highly informed risk selection and sophisticated analytics for pricing precision.

The business strategy should take market and competitive trends into account and define expected outcomes and goals for the business. Using the business strategy as a foundation or base, functional business requirements can then be documented—specifying the particular needs and preferences of the insurer. These desired business capabilities can then be used to determine the specific application and technology requirements that will be needed to guide investment decisions.

The important point is to let the business strategy guide the definition of need—to determine exactly what functional business capabilities are needed and then to use those business capability requirements to guide investments in technology. The following questions and considerations can be helpful for insurers in defining their requirements for functional business capabilities:

• Distribution Channel Interactions: How do you want to handle interfacing with your business channels? Do you have an agent strategy or a direct to consumer strategy or both? How do you want to be able to interact? What information do you want to present?
• Product Agility: Do you offer highly customized and specialized products? How often will you be making changes to your product offerings? How quickly do those changes need to be made? How often are rate changes required?
• Collaborative Underwriting: What is the maturity level of your underwriting process? How much interaction is required between the agent and underwriter? Do you plan to handle the majority of your business in a straight-through manner? Or, do you have highly customized offerings that require many interactions between the agent and the underwriter?
• Time to Market: How time-sensitive are your new product offerings? Is time-to-market really important? Is your current development cycle 3 to 6 months when you really need it to be 30 to 90 days? Or, does the 3 to 6 month timeframe meets your needs?
• Process Efficiency: Are there several unneeded steps in your processes? Are these extra steps tied to the technology that is currently being used? Is there a more efficient technology-enabled process that would help your business?
• Content—Rates, Rules, Forms, Stats: Is your regulatory content heavily based on ISO? Could you benefit by taking advantage of offerings that can expedite the implementation timeline and reduce cost of staying current with regulatory content?
• Vendor Management Process: How capable is your organization when it comes to managing vendors? Do you have processes in place that are effective? How will you manage a single supplier or services? How will you handle a multi-party relationship?
• Control—Application Service Provider (ASP), Software as a Service (SaaS), Outsource: What is the culture of the company regarding application and technology control? Would your company consider looking at services that are provided through some form of outsourcing or do you want full control of the infrastructure?

Once the required functional business capabilities have been clarified and defined, the next step is to review what you’ve learned in terms of the people, process, and technology requirements. Look at the level of automation that is needed and then assess the gaps that exist.

Understanding the Technology Decisions

The technology investment decisions should start with some basics. Is it appropriate to enhance existing systems? Is it better to buy new components or enterprise solutions? Are the needs of the organization so unique that it is necessary to build your own applications? At the heart of these decisions is the architectural environment. Modern systems operate on open platforms. They are flexible, using “small grain” components with callable interfaces to make linkages to other components and services easy. They can accommodate a wide range of devices. They are business process and rules driven and use common data models where the database is independent instead of being tied to a specific system or process.

A good place to start the process of outlining technical requirements is to review the current and planned direction for the organization’s technical environment. Begin with an inventory of the fundamentals. Architectures are never done; there is always room for improvement. There is an operational architecture in place and there should be a master plan for its migration to a future architectural vision. With the aid of a clear roadmap, insurers are able to evaluate and make intelligent choices about the components they implement.

The requirements for a policy administration system will vary widely depending on the progress that has been made in the implementation of a modern architecture. For example, an insurer that has recently invested in updating their user interfaces and separating them from the processing logic would be most concerned about finding a policy administration solution with Web services to connect with the front end. Portal functionality would not be as important because they already have that capability. A forward look is critical. Smart investments are planned with a full understanding of the capabilities of the architectural environment and technology that is in place today and the organization’s detail plans for the future.

Opening the Door to New Possibilities

It is indeed time to consider the possibilities moving out of the world of limitations. First, start with the strategic objectives of the business. Then, define the functional business capabilities required to achieve the organization’s goals. Understand the current and planned technology environment and then begin to look at solution options. By spending the time to take the appropriate initial steps, the process of evaluating those options and making sound investment decisions will not only be much clearer and easier, it will be much more productive—resulting in a successful solution that will stand the test of time.

About Strategy Meets Action

Exclusively serving the insurance industry, Strategy Meets Action (SMA) blends unbiased research findings with expertise and experience to deliver business and technology insights, research, and advice to insurers and IT solution providers. By leveraging best practices from both the management consulting and research advisory disciplines, SMA’s services are actionable, business-driven, and research-based—where strategy meets action—enabling companies to achieve business success. Visit www.strategymeetsaction.com for more information about SMA, or contact the author, Karen Furtado at kfurtado@strategymeetsaction.